UNIT 4

Course: Masters of Business Administration (MBA)

Subject Name: SALES AND RETAIL MANAGEMENT

Subject Code: KMBN MK04 (AKTU)

Prepared by: Mr. Prince Pal Singh

College: G.L Bajaj Institute of Management and

Technology Greater Noida

By: Mr. Prince Pal Singh

 UNIT-4

Introduction to Retailing
Retailing is a distribution process, in which all the activities involved in selling the
merchandise directly to the final consumer (i.e. the one who intends to use the product) are
included. It encompasses sale of goods and services from a point of purchase to the end user,
who is going to use that product.

Any business entity which sells goods to the end user and not for business use or for resale,
whether it is a manufacturer, wholesaler or retailer, are said to be engaged in the process of
retailing, irrespective of the manner in which goods are sold.

Retailer implies any organization, whose maximum part of revenue comes from retailing. In
the supply chain, retailers are the final link between the manufacturers and ultimate consumer.

Types of Retailing:

(i) Store Retailing

Department store is the best form of store retailing, to attract a number of customers. The other
types of store retailing includes, speciality store, supermarket, convenience store, catalogue
showroom, drug store, super store, discount store, extreme value store. Different competitive
and pricing strategy is adopted by different store retailers.

(ii) Non-Store Retailing

It is evident from the name itself, that when the selling of merchandise takes place outside the
conventional shops or stores, it is termed as non-store retailing. It is classified as under:

• Direct Marketing: In this process, consumer direct channels are employed by the
company to reach and deliver products to the customers. It includes direct mail
marketing, catalog marketing, telemarketing, online shopping etc.
• Direct Selling: Otherwise called as multilevel selling and network selling, that involves
door to door selling or at home sales parties. Here, in this process the sales person of
the company visit the home of the host, who has invited acquaintances, the sales person
demonstrate the products and take orders.
• Automatic Vending: Vending machines are primarily found in offices, factories,
gasoline stations, large retail stores, restaurants etc. which offer a variety of products
including impulse goods such as coffee, candy, newspaper, soft drinks etc.
• Buying Service: The retail organization serves a number of clients collectively, such
as employees of an organization, who are authorized to purchase goods from specific
retailers that have contracted to give discount, in exchange for membership.

(iii) Corporate Retailing

It includes retail organizations such as corporate chain store, franchises, retailer and consumer
cooperatives and merchandising conglomerates. There are a number of advantages that these

By: Mr. Prince Pal Singh

organizations can achieve jointly, such as economies of scale, better and qualified employees,
wider brand recognition, etc.

With the emergence of new forms of retailing, competition is also increasing between them.
It is one of the fast-growing and challenging industry.

Growing importance of Retailing

Retail involves the selling of goods to customers. While meeting the needs of customers,
following are some of the functions performed by a retailer:

Customer Convenience: Perhaps the most important role of bringing the ready to be
consumed goods to the doorstep of the consumer is performed by the retail
community. Consumers benefit from retailing as retailers perform marketing functions that
makes it possible for customers to have access to a broad variety of products and services.
Retailing also helps to create place, time and possession utilities. A retailer’s service also helps
to enhance a product’s image. Retailers stock goods and ensure the availability of products and
services just when the customer needs them. Convenience Stores operate over extended hours
through the week and give customers greater flexibility and choice.

Accessibility: Products and services have no value for consumers until they are acquired and
used by the customers. Retailers acquire products and services from different places and. assort
them at a single point as per the needs of the consumers and thus facilitate customers’ access.

Convenience of Size: Retailers break bulk and serve the products in quantities and sizes as
desired by the customer. For example, shampoo is available in small sachets. The retailer helps
consumer by providing appropriate products, service and advice in the packing and quantities
desired by them.

Associated Services: A vibrant retail sector benefits the consumers by providing range of
products and services efficiently. Retailing can be done in either fixed locations or online.
Retailing includes subordinated services, such as delivery. The term “retailer” is also applied
where a service provider services the needs of a large number of individuals, such as a public
utility, like electric power. Retailing also helps to increase the living standards and enable the
consumers to possess various goods, services and utilities.

Supply Chain: Retailers are part of an integrated system called the supply-chain. A retailer
purchases goods or products in large quantities from manufacturers or directly through a
wholesaler, and then sells smaller quantities to the consumer for a profit. Retailers participate
in the sorting process by collecting an assortment of goods and services from a wide variety of
suppliers and offering them for sale. The width and depth of assortment depend upon the
individual retailer’s strategy. Retailers provide the vital link between producers and ultimate
consumers.

Value Chain: When consumers purchase goods, retailers must order more goods to replenish
their stock. In turn, factories must manufacture the goods for the retailers. The factories then

By: Mr. Prince Pal Singh

purchase more raw materials to use to manufacture more goods. This is how consumer
spending is able to drive much of the economy.

Research & Information: The retailer provides useful information across the supply chain.
He informs and educates customers about product features and benefits. They provide
information to consumers through advertising, displays and signs and sales personnel.
Marketing research support is given to other channels, members. Retailing in a way, is the final
stage in marketing channels for consumer products. He also provides feedback about consumer
requirements to the manufacturers and wholesalers which help them in planning production
and supply.

Mobilizing Finance: Retailing industry mobilize the investment and savings of people, as a
small shop can be set up with minimal investment. They store merchandise, mark prices on it,
place items on the selling floor and otherwise handle products; usually they pay suppliers for
items before selling them to final customers. They complete transactions by using appropriate
locations, and timings, credit policies, and other services e.g. delivery. They influence life style
of consumers and help people to build their identity in a social setting.

Economic Development: Retailing has great impact on economic development of a nation.

Retailing has become an intrinsic part of our daily lives. Consumer spending on retail goods
drives much of the global economy, and the retail industry employs a large number of people.
Nations that have enjoyed the greatest economic and social progress have a vibrant retail sector.
Retailing is one of the most important industries in the world and plays a predominant role in
economic development of the country. A healthy retail sector growth and speeds up economic
development.

Employment: There are a large number of people and companies involved in the production,
distribution, and retail of goods. Globally, retailing is the largest revenue generator and
employment provider next only to agriculture. It provides opportunities to the poorest and
unskilled along with the educated and skilled. As a major source of employment retailing offers
a wide range of career opportunities including; store management, merchandising and owning
a retail business.

Social Responsibility: Successful retailers also recognize that people want to see the
improvements in the general level of consumption and social cohesion over time.
Retailers have to enhance their perceived value to the community by acting as a focal
point and through effective public relations and promotional campaign including
sponsorships. This encourages social responsibility behavior by the corporates where
public welfare programs get funded by a certain percentage of purchase prices of
company’s products.
Factors influencing Retailing
Some of the factors responsible for the growth of organised retailing are as under:

1. Growth of middle class consumers

Factors influencing Retailing

By: Mr. Prince Pal Singh

21 Jun 2019
Some of the factors responsible for the growth of organised retailing are as under:

1. Growth of middle class consumers:

In India the number of middle class consumer is growing rapidly. With rising consumer
demand and greater disposable income has given opportunity of retail industry to grow and
prosper.

They expect quality products at decent prices. Modern retailers offer a wide range of products
and value added services to the customers. Hence this has resulted into growth of organised
retailing in India.

Growing consumerism would be a key driver for organized retail in India. Rising incomes and
improvements in infrastructure are enlarging consumer markets and accelerating the
convergence (meeting) of consumer tastes.

2. Increase in the number of working women:

Today the urban women are literate and qualified. They have to maintain a balance between
home and work. The purchasing habit of the working women is different from the home maker.

They do not have sufficient time for leisure and they expect everything under one roof. They
prefer one-stop shopping Modern retail outlets therefore offers one store retailing.

3. Value for money:

Oganised retail deals in high volume and are able to enjoy economies of large scale production
and distribution. They eliminate intermediaries in distribution channel.

Organised retailers offer quality products at reasonable prices. Example: Big Bazaar and
Subhiksha. Opportunity for profit attracts more and more new business groups for entering in
to this sector.

4. Emerging rural market:

Today the rural market in India is facing stiff competition in retail sector also. The rural market
in India is fast emerging as the rural consumers are becoming quality conscious.

Thus due to huge potential in rural retailing organised retailers are developing new products
and strategies to satisfy and serve rural customers. In India, Retail industry is proving the
country’s largest source of employment after agriculture, which has the deepest penetration
into rural India.

By: Mr. Prince Pal Singh

5. Entry of corporate sector:

Large business tycoons such as Tata’s, Birla’s, and Reliance etc. have entered the retail sector.
They are in a position to provide quality products and entertainment.

As the corporate – the Piramals, the Tatas, the Rahejas, ITC, [Link]’s, RPG Enterprises, and
mega retailers- Crosswords, Shopper’s Stop, and Pantaloons race to revolutionize the retailing
sector.

. Entry of foreign retailers:

Indian retail sector is catching the interest of foreign retailers. Due to liberalisation
multinationals have entered out country through joint ventures and franchising. This further is
responsible for boosting organised retailing.

7. Technological impact:

Technology is one of the dynamic factors responsible for the growth of organised retailing.
Introduction of computerization, electronic media and marketing information system have
changed the face of retailing. Organized retailing in India has a huge scope because of the vast
market and the growing consciousness of the consumer about product quality and services.

One of the major technological innovations in organised retailing has been the introduction of
Bar Codes. With the increasing use of technology and innovation retailers are selling their
products online with the help of Internet.

8. Rise in income:

Increase in the literacy level has resulted into growth of income among the population. Such
growth has taken place not only in the cities but also in towns and remote areas.

As a result the increase in income has led to increase in demand for better quality consumer
goods. Rising income levels and education have contributed to the evolution of new retail
structure. Today, people are willing to try new things and look different, which has increased
spending habits among consumer.

9. Media explosion:

There has been an explosion in media due to satellite television and internet. Indian consumers
are exposed to the lifestyle of countries. Their expectations for quality products have risen and
they are demanding more choice and money value services and conveniences.

10. Rise of consumerism:

With the emergence of consumerism, the retailer faces a more knowledgeable and demanding
consumer. As the business exist to satisfy consumer needs, the growing consumer expectation
has forced the retail organizations to change their format of retail trade. Consumer demand,

By: Mr. Prince Pal Singh

convenience, comfort, time, location etc. are the important factors for the growth of organised
retailing in India.

The retail industry is divided into organised and un-organised sectors. Organised retailing
refers to trading activities undertaken by licensed retailers, that is, those who are registered for
sales tax, income tax, etc.

These include the corporate-backed hypermarkets and retail chains, and also the privately
owned large retail businesses. Un-organised retailing, on the other hand, refers to the traditional
formats of low-cost retailing, for example, the local kirana shops, owner manned general stores,
paan/beedi shops, convenience stores, hand cart and pavement vendors.

It is important to understand how retailing works in our economy, and what role it plays in the
lives of its citizens, from a social as well as an economic perspective. India still predominantly
houses the traditional formats of retailing, that is, the local kirana shop, paan/beedi shop,
hardware stores, weekly haats, convenience stores, and bazaars, which together form the bulk.

Strategic Retail Planning Process

For the purpose of developing retail strategies, retailers are required to follow a step by step
procedure or planning process. The planning process discusses/involves the present stage of
business, the formulation, list of available strategic options, and the implementation of the
selected strategies. Considering the importance of strategic decisions for the future success of
the business, a systematic approach is essential.

The strategic planning process, which after considering the HR potential and USP of a
particular store takes proper shape, is normally divided into following steps:

1. Deciding the store’s philosophy, mission and objectives,

2. Situation analysis,
3. Formulation of retail strategy
4. Strategy implementation and control.

1. Deciding the store’s philosophy, mission and objectives:

The retail strategic planning process starts with the identification of store’s mission for its
existence and hence the scope of the retail store. The mission of a store entails identifying the
goods and services that will be offered to customers. It also deals with the issue that how the
resources and capabilities of a store will be used to provide satisfaction to customers and how
the store can compete in the target market vis-a-vis its competitors.

The mission also involves the way of store’s functioning. How a store will work and
accomplish its day to day operations? What is the emergency planning? All are answered in
the store’s mission statement. For example, Vishal Mega Marts, they have philosophy of
customer satisfaction through “manufacturing to retailing”.

By: Mr. Prince Pal Singh

This reflects not only the way it tends to treat its customers, but discusses the secret of its
competitive advantage, i.e. the profit saved from absence of intermediaries like agents and
brokers, commission saved is distributed to customers by way of low priced items.

Once the organization mission has been determined, its objectives, desired future positions that
it wishes to reach, should be identified. Stores’ objectives are defined as ends which the store
seeks to achieve by its USP (Unique Selling Preposition) and operations.

The store’s objectives may be classified into two parts:

(i) External store objectives, and

(ii) Internal Store Objectives.

External store objectives are those that define the impact of store on its environment, e.g., to
develop high degree of customer confidence by providing quality goods at lowers prices.
Internal store objectives, on the other hand, are those that define how much is expected to be
achieved with the available resources, e.g. to raise the store turnover by 15% in the coming
year.

2. Situational Analysis (SWOT Analysis):

The objective of doing store’s situation analysis is to determine where the store is at present
and to forecast where it will be if formulated strategies are implemented. The difference
between current and future position (forecasted) is known as planning or strategic gap. Under
organisational analysis, normally stores study their external (environmental) and internal
environments.

External Analysis:

The purpose of examining the store’s external environment is to study the opportunities and
threats in the retailing environment. The external analysis studies factors that affect the macro-
environment of retailing industry and the task environment.

Under external analysis, retailer studies these parameters:

(i) Economic environment of retailing,

(ii) Political environment of retailing,

(iii) Legal environment of retailing,

(iv) Socio-cultural environment of retailing,

(v) Technological environment of retailing, and

By: Mr. Prince Pal Singh

(vi) International environment of retailing.

The store’s task environment can be influenced directly by retailer’s own policies and includes
competitors, suppliers and customers.

Internal Analysis:

The objective of studying internal environment of its own store is to identify the store’s
strengths and weaknesses. The store will try to increase its capabilities, and overcome the
weaknesses that deter the business profit. While doing the internal analysis, store examines the
quality and quantity of its available resources and critically analyzes how effective these
resources are used.

These resources for the purpose of examining are normally grouped into human resources,
financial resources, physical resources (assets) and intangible resources (goodwill, image etc).

The types of questions that are enquired under different resources are:

Human resource:

(a) Is present strength of employees at various levels is sufficient for future action?

(b) Are the employees trained and capable to perform the tasks assigned to them?

(c) Are the employees loyal to store?

(d) Are the employees punctual and regular?

(e) Are the employees skilled in their assigned tasks?

Financial resource:

(a) What is the total cash flow from store’s present activities?

(b) What is the ability of retail store to collect money at the time of requirement/ emergency?

c) How much effective and stable financial policies are?

(d) What is the ratio between fixed and current assets?

(e) What are the contingency plans in case of negative cash flow?

Physical resources:

(a) What is the contribution of fixed assets?

By: Mr. Prince Pal Singh

(b) What is the position of abandoned/unused assets?

(c) How effective and update are the store’s information systems?

Intangible resources:

(a) What is the present capability of the company’s management?

(b) How effective is the R & D cell?

(c) How good is the competitor’s intelligence system?

(d) How effective store’s loyalty programmes are?

(e) What is the capability of retail store manager?

(f) Are customers loyal towards company’s products?

3. Formulation of Retail Strategy:

In this stage, after analyzing the store’s capabilities in terms of HR, finance, physical and
intangible resources, a store manager formulates retail strategy with regard to marketing, retail
positioning and retail mix. Marketing is the way to achieve the set objectives. Therefore,
marketing strategy should be devised according to store’s primary and secondary objectives.
Generally, marketing strategy is developed on the basis of product and/or market segmentation
instead of the market as a whole.

Retail Positioning is a plan of store’s action for how the retailer will enter the target market and
will compete with its main competitors. Retail positioning from a retail store’s point of view,
is a step by step plan to create and maintain a unique and everlasting image of the store in the
consumers’ mind.

This process reveals the fact that understanding ‘what customer wants?’ is the success key to
retail positioning in the market. Under retail positioning, a retailer conveys the message that its
products are totally different and as per customers’ requirement. The reason here is that
customers are attracted towards items that are new for them with the perception that if it is new,
it will have some extra/added features.

Retail positioning is made possible under these circumstances:

(i) By differentiating the store’s merchandise from its competitors,

(ii) By offering high level of after sales services at nominal/no cost, and

(iii) By adopting low pricing policies.

By: Mr. Prince Pal Singh

Retail Mix is the blend of various retail activities which in total present the whole concept of
retailing. The retail marketing and retail positioning strategies are put into effect by this retail
mix – the set of controllable elements that a retailer can use to satisfy customers’ needs and to
influence their buying behaviour and compete effectively in the target market. Utmost care is
required on the part of retail manager to select the various elements for a perfect retail mix.

The main elements a retail store manager has to face are:

1. Store’s location
2. Merchandise assortment
3. Pricing policy
4. Customer service mechanism
5. Visual merchandising
6. Personal selling efforts
7. Advertising efforts and
8. Store’s internal and external environments.

4. Strategy Implementation and Control:

It is concerned with the designing and management of retail systems to achieve the best
possible combination of human, financial, physical and intangible resources of a retail store to
achieve the formulated objectives, without timely and effective implementation also requires
scheduling and coordination of various retail activities. For example, the coordination between
the marketing and sales promotion department is a must for sales promotion to make success.

Further, the spirit of team work is an essential part for the success of strategy implementation.
If the retail store’s strategies are competitive, marketing efforts are as per demand but the sales
promotion employees are not taking it seriously or are ineffective, result will not be up to the
mark.

The implementation of new retailing strategies sometimes require changes in the way of
functioning and duties that can lead to resistance from employees. Therefore, stores should
take positive steps to reduce this resistance to change and to convince the employees that it in
a long term will be beneficial for both the store and employees.

The positive steps include the following:

(i) Inspection,

(ii) Detection, and

(iii) Correction.

It means after implementing the retail strategies, retailer should assess how effectively
strategies are being implemented, how far the strategic objectives are being achieved and what
has been left to be achieved in the store’s objectives list. Therefore, retailers inspect the
implemented strategies from time to time and detect the fault (if any) in the implementation of

By: Mr. Prince Pal Singh

various retail elements. If any deficiency is found during inspection process, that has to be
corrected with immediate effect without any further loss to store.

Retail Organization
Retailers are the last and vital members in the channel of distribution. The retailer serves the
manufacturer by providing his goods and services to the consumers and creates a channel of
information where customers’ feedback, their expectations and points of dissatisfaction (if any)
are shared with the manufacturer. From customer’s point of view, the retailer’s main function
is to provide merchandise in the right quality, quantity, price, time, and at the right place.

This objective is achieved through following perspectives:

1. Identifying Consumer Demands:

The first task that a retailer has to perform is to identify the consumer needs and wants. The
retailer does not provide raw materials, but offers finished goods and services in a ready-to-use
form that the consumers want. For this, from time-to-time, retailer gathers information about
consumers’ liking, disliking, tastes and preferences.

2. Management of Merchandise:

The second task that a retailer performs is the management of merchandise. The retailer
performs the function of storing the merchandise and provides as and when required by the
customer.

3. Convenience of timing:

The retailer creates time utility by keeping the store open and ready for sale according to
consumers’ convenience. The new trend in retailing to longer trade hours reflects the socio-
cultural changes where over one in ten people work outside normal hours resulting in changing
trading hours and panacea for small retailers against the cheaper prices of the super stores and
other retail chains. By being available at a location that has easy access and convenient to shop,
retailer creates place utility. Finally, when selected and bought by customers, retailers create
ownership utility.

In short, retailers are not only the final link between the consumers and the manufacturers but
a vital part of modern business world. In the absence of retailing, one can easily imaging how
difficult and costly for a consumer to approach a manufacturer for various things every time he
wants. Retailers do not sell things in small quantities but make their shopping convenient and
less risky.

Retailers have floor staff to answer their queries regarding how to use effectively and safely,
guide them what to buy according to individual preferences and budget and give demonstration
or display products so that the consumers should have a feel of the merchandise before buying.
The successful retailer focuses its activities on meeting these objectives through effective
marketing.

By: Mr. Prince Pal Singh

Retail Sales Goals:

Retail Sales measures the gross receipts of a retail store by selling durable and nondurable
goods. The main components of retail sales are grocery, food & clothing and shoe retailing. In
India, consumer spending roughly accounts for over 60% of GDP and is therefore, a vital
element in the country’s economic growth. Any change in retail sales pattern is important and
is seen as the timeliest indicator of wide consumption patterns. Retail sales may have short
term and long term goals in nature. Short term retail sales goals are supposed to support and
merge into long term goals.

The goals of retail sales irrespective of a country’s profile are:

(i) To serve a link between the manufacturer and end consumers

(ii) To improve communication with retail customers

(iii) To improve sales target

(iv) To provide efficient customer service knowing the power of mouth advertisement

(v) To build image among general public

vi) To improve social responsibility

(vii) To serve different markets

(viii) To get quick feedback about the merchandise sold and consumer services offered

ix) To convert visitors to buyers

(x) Optimum utilization of fixed cost related expenses.

Retail Models
1. The Gatherers

The formula of large stores, low prices, and abundant parking to gather shoppers together has
long been at the heart of successful retailing, however, the reasons people congregate will
change as will the businesses best placed to tempt them.

As technology is reducing the need to leave home the types of occasions to visit a bricks and
mortar retailer are converging.

The result is the focus on gathering will command a premium and retail will become just one
way for gatherers to make money.

By: Mr. Prince Pal Singh

Other successful gatherers will come from further afield: multi-purpose real-estate developers,
transport operators and ‘virtual gathering’ giants such as Amazon andGoogle.

Acting as manufacturer’s agents by providing the gathering space to exchange they will change
both the face of retail and its business model.

2. The Connecters

Connections that retailers form with shoppers will readily expand beyond the transaction.

Technology is providing more ways to connect and retailers who leverage this quickly can
remain relevant and generate new revenue streams.

Big data enables personalised connections with readily accessible shopper histories
and preferences, while beacon technology and self check in provides targeted in the moment
communication.

Importantly, retailers who connect through content and demonstrate intimate knowledge of
their shopper’s requirements will differentiate with a broader range of bespoke services, such
as UK supermarket, Tesco, which now acts as a bank, insurance provider, mobile phone
operator, and on-demand video streaming service.

3. The Helpers

Shoppers are accustomed to trading time, money, and angst in exchange for items they want
and the satisfaction from obtaining them.

Increasingly, they will be happy to trade privacy for personalisation to alleviate these stresses.
This affords retailersanother opportunity to differentiate by providing specific help.

With their ‘Amazon Dash’ device scanning barcodes, Amazon makes it easy to replenish low
running stocks whilst their customers make substantial savings by committing to
regular deliveries of items on a predictable schedule.

Smart cupboards and connected fridges promising wholly automatic re-ordering processes will
join this form of low-effort replenishment.

Digital technology will also help shoppers choose and navigate the path to purchase, allowing
retailers to anticipate and match e-commerce sites with personalised virtual shelves.

If shoppers still need to choose, buyer ratings, peer reviews, and price comparisons are
available and mobile devices can prompt lifestyle-based suggestions, while augmented reality
helps shoppers envisage how items fit into their daily lives.

By: Mr. Prince Pal Singh

 4. The Deliverers

Shoppers have long been delegated with the responsibility of getting goods home but a bigger
slice of retail will soon involve safe and timely delivery to the home.

Delivery may well develop into wholly separate enterprises from massive
distribution companies to small scale, crowd-sourced models.

Hybrid versions such as click and collect will still play a role but in time, driverless cars,
drones and 3D printing will reshape the delivery landscape.

5. The Traders

The new environment of price transparency, intensifying competition, and alternative direct
business models means making decent profit margins is more difficult.

The solution may be in dynamic pricing, the means of trading directly with shoppers based on
understanding their priorities and the competitive set of products and services they consider.

Location-based technology will update pricing and promotions as shoppers scan the shelf. It
will focus on bulk buy bargains for some and convenient extras (like instant delivery via a
drone) for others.

Trading is today’s core competency but mastering the art of dynamic pricing could provide
vital differentiation. Knowing exactly what each shopper values most and engineering a
satisfactory transaction will create the greatest possible margins.

6. The Payment Providers

The fundamentals of payments will not change, however speed, ease, and flexibility will.

The mobile phone will be the payment method of choice in ten years and establishing expertise
in this area now means retailers can open up new revenue streams.

A new battle for ‘share of statement’ could emerge as they increasingly bid to offer payment
services for credit cards, utilities and mobile phone bills, all the while increasing their capacity
to gather customers.

This reconfiguration of the shopping process poses many existential questions: Does
your expertise still lie in trading or can you focus on new revenue models? Can you stay
big, gather people in larger numbers, and monetize their ability to do so or should you be
small and nimble, leveraging your expertise in trading whilst satisfying individual shopper
needs?

Should you seek to dominate delivery or outsource it? The answers will ultimately come down
to your understanding of the other critical factor in retail: the changing nature of shoppers
themselves.

By: Mr. Prince Pal Singh

 Theory of Retail Development
Retail development can also be looked at from the theoretical perspective. No single theory can
be universally applicable or acceptable. The application of each theory varies from market to
market, depending on the level of maturity and the socio-economic conditions in that market.

The theories developed to explain the process of retail development revolve around the
importance of competitive pressures, the investments in organizational capabilities and the
creation of a sustainable competitive advantage, which requires the implementation of strategic
planning by retail organizations Growth in retail is a result of understand in market signals and
responding, to the opportunities that arise in a dynamic manner. Theories of retail development
can broadly be classified as:

1. Environmental: Where a change in retail is attributed to the change in the environment

in which the retailers operate.
2. Cyclical: Where change follows a pattern and phases can have definite identifiable
attributes associated with them.
3. Conflictual: where the competition or conflict between two opposite types of retailers,
leads to a new format being developed

Environmental Theory

Darwin’s the of natural selection has been popularized by the phrase “survival the fittest”.

Retail institutions are economic entities and retailers confront an environment which is made
up of customers, competitors and changing technology. This environment can alter the
profitability of a single retail state as well as-of clusters and centers. The environment that a
retailer competes in is sufficiently robust to squash any retail form that does not adjust.

Thus, the birth, success or decline of different forms of retail enterprises is many a times
“”attributed to the business environment. For example, the decline of department stores in the
?western markets is attributed to the general inability of those retailers to react quickly and
positively to environmental change.

Cyclical Theory

The most well known theory of retail evolution is The Wheel of Retailing theory. This theory,
described by McNair II, helps us understand retail changes. This theory suggests that retail
innovators often first appear as low-price operators with a low-cost structure and low profit-
margin requirements, offering some real advantages, such as specific merchandise, which
enables them to take customers away from more established competitors.

As they prosper, they develop their businesses, offering a greater range or acquiring more
expensive facilities, but this can mean that they lose the focus that was so important when they
entered the market. Such ‘trading up’ occurs as the retailer becomes established in his own
right.

By: Mr. Prince Pal Singh

Conflict Theory

Conflict always exists between operators of similar formats or within broad retail categories.
It is believed that retail innovation does not necessarily reduce the number of formats available
to the consumer; instead, it leads to the development of more formats. Retailing thus evolves
through a dialectic process, i.e., the blending of two opposites to create a new format.

his can be applied to Developments in retailing as follows:

1. Thesis: Individual retailers as corner shops all across the country

2. Antithesis: A position opposed to the thesis develops over a period of time. These are
the department stores. The antithesis is a “challenge” to the thesis.
3. Synthesis: There is a blending of the thesis and antithesis. The result is position
between the “thesis” and “antithesis”. Super markets and hypermarkets thrive. This
“synthesis” becomes the “thesis” for the next round of evolution.

Modern Retail formats in India

There are a number of formats in modern retail which emerged over the last century or so and
have now become the standard the world over. They today rule the roost and have captured the
bulk of the market share around the globe. Let us discuss these briefly.

Supermarkets

A supermarket is a large food store of at least 4,000 [Link]. (in Europe 5,000 [Link].) in size where
the bulk of the sale is under the self-service system. Here the word ‘food,’ apart from eatables,
includes all consumable items such as oral care, bath soap, detergent, cleaning materials,
cosmetics, shaving aids, etc. which are purchased, used and again purchased almost every
month.

There is however no rule that says that you cannot sell non-food items in a supermarket – many
supermarkets have a medicine counter in a corner, for example. Within self-service or outside
self-service, other products like plastic, garments, utensils, kitchen appliances and household
goods can also be placed in a supermarket depending upon the customer demand and
availability of space. The shopping trolley in a supermarket usually has a size of 60 litres.

The modern supermarket is an American invention. When the first one – called King Kullen –
was established in 1930 by an Irish-American salesman Michael J Cullen (1884–1936) by
introducing the concept of self-service, people thought everything at his store will get stolen
and he will go bankrupt soon. But in the space of only one year, Cullen started seven more
stores!

In the 1960s, the supermarket concept got maturity and was acknowledged around the globe.
Interestingly, the first supermarket of India – Delhi’s Super Bazar – was started way back in
1967.

A supermarket may be of three types, which are discussed below.

By: Mr. Prince Pal Singh

Neighbourhood Supermarkets

As the name indicates, this is located within a densely populated residential area. This
supermarket cannot and should not think of bigger catchment areas and a huge sale. This is the
most suitable format for an owner-managed local retail chain.

Navjeevan Super Shop of Jalgaon, Pariwar supermarkets of Jalna, and Patel low-price
supermarkets at Ambarnath (a suburb of Mumbai) are some examples of this format. It is
advisable for most of the current grocery-selling shops of India to switch over to this format
for their survival and growth. The strategy of this format is that it targets the monthly
expenditure of a household and sells its day-to-day requirements.

Discount Supermarkets

As the name indicates, this supermarket format chooses the low price strategy and sells all the
items at a discounted rate. This seems to be the mantra of many famous retail chains in India
like D-Mart and so on.

Destination Supermarkets

A destination supermarket is a large one with a wide range of goods apart from food. In this
format, the basket size is much more. Supermarket chains with national ambitions should
choose only this route if they want to survive and thrive.

Convenience Stores

A convenience store is a scaled-down version of a supermarket. In this, the range of stock

differs from location to location. In the USA, almost all petrol pumps are convenience stores
too. In Thailand, China and Singapore, the convenience stores are like small supermarkets,
selling mainly food items and vegetables.

At popular tourist spots, convenience stores mainly sell tourist-oriented products such as fast
food, beverages and personal-care items.

Discount Stores

This is again an American innovation by two brothers, Stephen and Phillip Masters. They set
up the world’s first-ever discount store in 1930. These stores sell limited items at a cheaper
price throughout the year.

The discount stores – which may or may not operate like a supermarket – are a suitable format
for large-scale national as well as global chains. The most successful such chain is Aldi which
started operations in 1960 and spread quickly to thousands of stores spread across 20 countries.

Hypermarkets

Hypermarkets are a French innovation that took off in 1962. The credit for this format goes to
Carrefour, the retail giant of France. The original definition of a hypermarket was a large store

By: Mr. Prince Pal Singh

of 25,000 [Link]. with at least 25 checkouts, with tall ceiling, wider aisles, and lots of customer
service. The modern hypermarkets however range from 50,000 to 100,000 [Link]. in size. Some
world-famous hypermarket chains include Carrefour, Tesco and Metro. In India, Big Bazaar,
D-Mart, More and Hypercity are some examples of hypermarket chains. Unless a hypermarket
has a monthly customer traffic of at least 1 lakh, it cannot be viable.

Warehouse Clubs

This format is an innovation of Sol Price (1916-2009) who started it in 1976 at Sandiego, USA.
In layman’s language, this format is also known as cash-and-carry and is open to members only
and not the general public. The current definition of a warehouse club is that it is a no-frill, no-
thrill large-format store selling only to its members at wholesale rate.

Department Stores

A department store is over 10,000 [Link]. in size, selling at least five different commodity groups,
with a major thrust in apparel. This format is a French innovation. Bon Marche, the Paris
emporium started by Aristede Boucicaut in late 1840s, was the first-ever department store in
the world. The first such store in the US was set up by Alexander Stewart in 1848. Both the
stores introduced the concept of fixed prices. Subsequent department stores were greatly
influenced by the practices of these two innovators. Fixed price, quality merchandise, attractive
interiors and one-stop shopping are the contribution of department stores in the field of modern
retail. In America, furniture is a must-have category for a department store.

A department store may sell 5 to 50 different commodity groups. The entreprenuer, however,
may not have the experience or expertise in all these categories and may also not have the
needed capital.

Some world-famous stores in this format are JC Penney and Gap of USA, Marks &
Spencer and Harrods of UK, etc. Prominent such stores in India include Shoppers
Stop, Westside, Lifestyle and Pantaloon. The average ticket size in this format usually ranges
from Rs 950 to Rs 1,250, with two-three SKUs.

Specialty Stores

The specialty stores specialise in a particular category or sub-category of goods such as

footwear, sarees, dress material and jewellery. These are of smaller size compared to bigger
formats and focus on quality and variety of the chosen category. Leading stores of this format
include Toys ‘R’ US (toys), Bata (shoes), Nalli (silk sarees) and PC Jewellers.

Malls

This retail buzzword is actually not a format. A mall means a large building complex with a
conglomeration of shops of various sizes and types, with fun, food and entertainment facilities.
The first mall in India was set up in 1997 by the Goenka Group in Chennai, called Spencer
Plaza.

By: Mr. Prince Pal Singh

A mall can never be successful until it has at least five anchor tenants, a successful hypermarket
or a destination supermarket, an established department store, a multiplex, a food court and an
outlet of a QSR brand such as McDonald’s, Domino’s or Pizza Hut.
The anchor tenants always pay much less rent than the market rate. Mall builders who forget
this rule usually end up in failure.

Global retailers follow mainly four formats: hypermarket, warehouse club, super-centre and
department store. Retailers interested in becoming national players should adopt any large
format that is suitable. For the local level, the supermarket format is the best advisable.

The basic objective of all these retail formats is to attract customers and generate good sales.
Therefore, they must focus on the needs and preferences of customers. The owners, promoters
and the operations team should also understand their format’s USP and work accordingly.

Retailing in Rural India

According to the provisional data released by Census India (2011), the population of India is
1.21 billion comprising rural and urban population that is 68.84 percent and 31.16 percent
respectively. Which means more than double the population of urban India resides in rural
India. Organised way of modest retailing started in Indian in 1990’s metros but now India is
witnessing high growth not only in big cities but also in tier I and tier II cities. After exhausting
the urban market companies are looking towards the rural areas as it comprises of almost half
of thedomesticretail.
With rising income level and improving lifestyle of rural consumer, the retail sector is
promising a huge growth in rural India.

Approach towards Rural retailing

Companies should go to the producers directly and middle men should be removed from this
process. Knowledge exchange centres should be set up where both companies and consumers
can talk about their problems and solutions it will help companies to know there consumer need
in a better way. For improving sales they need to first earn respect and confidence of the locals
and also they should respect farmers and non-farmers with respect. Their outlets should cater
to the needs of the locals at cheap and best price.

Opportunities

Around 70% of Indian population lives in rural india and with growing economic power and
education development purchasing power of rural population is also increasing.

More than eighty per cent of rural markets in India still do not have access to any sort of
organized marketing and distribution. So, there is sea of opportunities for retailers to serve
shoppers in rural and semi-urban India. India Brand Equity Foundation (2011) said that rural
India is set to witness an economic boom, with per capita income having grown by 50% over
the last 10 years, mainly on account of rising commodity prices and improved productivity.
For many years, rural India was not much acknowledged by the retailers. But as the ‘bottom of
the pyramid’ is getting empowered with education, higher purchasing power and awareness,
companies are looking for opportunities in hinterlands and this will open market further.

By: Mr. Prince Pal Singh

Challenges

Setting up organised retail outlet in rural India is itself is a challenging task as initial penetrating
cost is really high.

For a retailer, before entering rural markets, it is very important to gain knowledge and insight
of target consumers as well as markets. They need to formulate their strategies, that could be
different from urban markets like rural population is mostly dependent on crop cultivation,
livestock, forestry or fishing etc. Whereas, the main livelihood drawn by urban population is
mainly within the continuum of non-agricultural production or making/selling goods or
services. By understanding these differences, the retailers can decide a merchandise-mix that
matches the needs of rural consumers.

Because of low level of literacy, different languages and dialects and more traditional outlook
a better trained staff will be required to understand the needs and demand of rural population
which will result in high operating cost.

Since per capita income of rural in India is very low catering to the need of the rural customers
will be challenging task.

Products of rural market must be built or modified to suit lifestyle and needs of rural customer.

Some of the organised retail model working in rural India

Hariyali Kisaan Bazaar

It is the division of DCM Shriram Consolidated Limited (DSCL)’s Agri-Business. The

company (DSCL) operates in two lines of business – Agri/Rural, Chemicals and polymers.
Their Agri-business offerings comprise agricultural inputs, both manufactured and
merchandised, outputs, distribution and services. The company initiated a ‘Rural Retailing’
initiative with the objective to move towards providing total solutions to the farmers. Hence, it
can be said one-stop shop for meeting farming and family needs of the rural population. It has
264 outlets in many villages of eight different states – Haryana, Punjab, Uttar Pradesh,
Rajasthan, Uttrakhand, Madhya Pradesh, Maharashtra and Andhra Pradesh.

Range of Products and Services in ‘Hariyali Kisaan Bazaar’

Retailing

Agri-inputs – Fertilizers, Pesticides, Diesel and Petrol (under alliance with BPCL)
* Farming – Farming instruments, Contract farming
* Others – FMCG, durables, apparels, Seed Processing etc.

Services

* Insurance – Agriculture, Agronomy advisory, Insurance, Credit etc.

* Others – Output Procurement & Trading

By: Mr. Prince Pal Singh

Aadhaar

Started in December 2003, Aadhaar Retailing was Godrej Agrovet’s rural retail initiative
catering to the growing consumption demand in rural [Link] Agrovet Ltd., a part of the
Godrej Group, is a market leader in animal feeds, branded chicken, innovative agri- products
& oil palm development in India. In March 2008, Aadhar Retailing entered into a joint-venture
between Future Ventures India Limited (FVIL) which held 70 percent stake and Godrej
Agrovet which held rest of the 30 percent stake in Aadhar Retailing Limited. FVIL is part of
Future Group – an established leader in Indian retail sector. It had purchased the stake for Rs
30.18 crore from its promoter Godrej Agrovet.

Range of Products and Services in ‘Aadhaar’

Retailing

* Agri-inputs – Fertilizers and Pesticides

* Durables – Mobile phones & accessories, appliances, Kitchenware etc.
* Others – Furniture from Godrej Interio, Toys, Cosmetics, Stationery and gift items, fresh
fruits & vegetables etc.

Services

* Credit and Financing – Agriloans to the farmers (by HDFC Bank), Life insurance (ICICI
Prudential) etc.
* Others – food-court, Soil testing and provide advice to farmers.

ITC Choupal Saagar

ITC launched the Choupal Saagar in 2004 and it is one of the first organized retail forays into
the hinterland. Choupal Sagar is a rural hypermarket which is managed by ITC’s agri-
business division. Farmers can sell their commodities and can buy almost everything
including cosmetics, garments, electronics, appliances and even tractors. Currently, there are
24 Choupal Saagars: 11 in Madhya Pradesh, 5 in Maharashtra and 8 in Uttar Pradesh. With
the success of e-Choupal (world’s largest rural digital infrastructure), ITC is engaged in
scaling up the rural retailing initiative to establish a chain of 100 Choupal Saagars in the near
future. Local sourcing of vegetables and fruits allows the company to deliver fresh and save
on the expense of a cold chain. Moreover, ITC’s procurement centers functions to provide
farmers the option of selling their produce directly to ITC instead of bringing it to the mandi.
ITC’s Agri Business Division conceived e-Choupal as a more efficient supply chain aimed at
delivering value to its customers around the world on a sustainable basis. It is an initiative to
link directly with rural farmers for procurement of agricultural/ aquaculture produce like
soybeans, wheat, coffee and prawns (Dangi & Singh, 2010). Launched in June 2000, ‘e-
Choupal’, has already become the largest initiative among all Internet-based interventions in
rural India.

By: Mr. Prince Pal Singh

Among those discussed above, there are few others: HUL’s Shakti, Reliance Retail’s Fresh &
Fresh Plus, Mahindra & Mahindra’s Shubhlabh and Tata’s Kisan Sansar, who are capitalizing
on rural India’s potential by partnering with farmers and establishing rural retail chains.

By: Mr. Prince Pal Singh